Earnings call transcript: O-I Glass Q1 2025 beats expectations

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals strong financial performance, including better-than-expected adjusted EPS and sales volume growth. The 'Fit to Win' program is generating significant savings, and guidance for 2025 shows substantial expected improvements in earnings and free cash flow. Although the Q&A section highlighted some uncertainties, such as potential volume declines and unclear impacts of fewer Chinese imports, the overall sentiment remains positive. The market cap indicates a moderate reaction, thus predicting a 2% to 8% stock price increase.

Key Financial Performance

Adjusted Earnings per Share $0.40 per share, down from last year, but exceeded expectations due to stronger sales volume and Fit to Win benefits.

Sales Volume Growth Increased by 4.4% year-over-year, driven by inventory rebuilding and contract negotiations.

Fit to Win Program Savings Generated $61,000,000 in savings in Q1, exceeding initial plans and contributing to better-than-expected results.

Segment Operating Profit in The Americas Improved significantly due to strong demand and $27,000,000 from Fit to Win benefits.

Segment Operating Profit in Europe Decreased due to lower net prices and temporary production downtime, partially offset by Fit to Win benefits.

Unabsorbed Fixed Costs $58,000,000 incurred due to production curtailments to reduce inventory.

Inventory Reduction Down approximately $225,000,000 year-over-year, on track to meet year-end target of less than 50 days.

2025 Adjusted Earnings Guidance Expected to improve between 50% to 85% from 2024 levels.

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Operating Highlights

Sales Volume Growth: Sales volume was up 4.4% in the first quarter, driven by strong demand in beer, spirits, and food across The Americas and Europe.

Market Positioning: O I Glass is well positioned to take advantage of opportunities emerging from changes in global trade policies, particularly with a focus on domestic production.

Fit to Win Program: Generated $61,000,000 in savings during the first quarter, exceeding initial plans, with a target of $250,000,000 in 2025.

Operational Efficiency: Completed actions to secure $100,000,000 in SG&A savings for 2025, with ongoing network optimization efforts.

Strategic Shift: Initiated Phase B of the Fit to Win program to transform costs across the value chain and improve operational performance.

Market Realignment: Restructuring operations in France to focus on premium wine and spirits, aligning production capabilities with market opportunities.

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Risk or Challenges

Sales Volume Growth: Sales volume growth was up 4.4% in Q1, but there are concerns about potential negative volume trends in the second half of the year due to uncertainties surrounding new tariff policies.

Competitive Pressures: In Europe, there were lower net prices and excess capacity, leading to a decline in operating profit despite a 4% increase in sales volume.

Tariff Uncertainty: Changes in global trade policies may disrupt operations and create both challenges and opportunities, with 14% of global sales volume crossing borders, exposing the company to potential tariff impacts.

Supply Chain Challenges: Temporary production curtailments were implemented to manage excess capacity and inventory, particularly in Europe, which may affect near-term shipments.

Economic Factors: Elevated market uncertainty may impact consumer demand elasticity, leading to a cautious commercial outlook.

Energy Costs: While energy costs are currently favorable due to long-term contracts, there is concern about future energy price resets impacting profitability.

Inventory Management: The company is working to reduce inventory levels, which are down $225 million year-over-year, but curtailments may lead to unabsorbed fixed costs.

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Guidance & Outlook

Fit to Win Program Savings: Generated $61,000,000 in savings during Q1 2025, exceeding initial plans. Targeting $250,000,000 in savings for 2025 and $650,000,000 cumulatively by 2027.

Phase A and B Initiatives: Phase A completed actions for $100,000,000 SG&A savings target in 2025. Phase B initiatives are underway to transform costs across the value chain.

Total Organization Effectiveness Program: Pilot implementation at Tijuana plant showed significant performance improvements. Broader rollout to begin in May 2025, expected completion by end of 2026.

2025 Adjusted Earnings Guidance: Reaffirmed guidance for adjusted earnings between $1.20 and $1.50 per share, representing a 50% to 85% improvement from 2024.

Sales Volume Outlook: Maintaining original sales volume guidance for 2025, with reassessment planned midyear due to uncertainties related to new tariff policies.

Free Cash Flow Expectations: Expecting significant rebound in free cash flow due to strong operating performance and lower CapEx investment requirements.

Inventory Reduction Target: On track to meet or be below year-end 2025 target of less than 50 days of inventory.

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Shareholder Return Plan

Shareholder Return Plan: O I Glass is reaffirming its full year 2025 guidance with adjusted earnings expected to range between $1.20 and $1.50 per share, representing a 50% to 85% improvement from fiscal year 2024. The company is also focused on enhancing operational performance and reducing costs to create shareholder value.

Fit to Win Program: The Fit to Win program aims to generate cumulative savings of $650 million by 2027, with a target of $250 million in 2025. In the first quarter of 2025, the program generated $61 million in savings, exceeding initial plans.

Free Cash Flow: O I Glass expects a significant rebound in free cash flow, boosted by strong operating performance improvement and lower capital expenditure investment requirements.

Share Repurchase: None

Dividend Program: None

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Key Q&A

Q:Can you talk a bit about any pre-buy effects you’ve sort of touched on within your what kind of volume effect might that be that has to reverse itself in the back half of year or whenever?

A:On the pre-buy point, as included in our comments, sales volume was up 4.4% in the first quarter. We actually saw probably a fairly limited amount of that. It was not the driver of the stronger volume in the quarter.

Q:April, you said softened. So are we looking at negative volumes to get to a year to date growth rate of 3% from up 4%?

A:While that’s not our base case view, we are remaining cautious in the commercial outlook. So we are maintaining our full year view of stable volume over for the year on a year over year basis.

Q:Can you give us a sense just in terms of the volume progress that you’re seeing by end market, whether it be wine, spirits, beer, NAB?

A:In both The Americas and Europe, we saw strong volumes in the first quarter across most categories. In The Americas, beer was up close to 4%, food performing strongly, high single digits, and spirits had a very strong quarter, up double digits.

Q:Can you talk about maybe the cadence of how you’d expect those headwinds to trend and ultimately inflect over the four quarters of the year?

A:Net price for the business will be front end loaded this year. It should be less than that in the second quarter and then be a relatively minor headwind for the business in the back half of the year.

Q:Can you talk about how fewer Chinese bottles, fewer Chinese imports, how you’re seeing that impact the market this year?

A:We’re currently not seeing a lot of impact because there does seem to have been quite a bit of pre-buying by importers and distributors.

Q:Can you just review what you’re hearing from some of your customers on the spirits side in North America?

A:We’re staying as close as we can to customers and working with them on different scenarios. There’s a bit of a wait and see over the next sixty days.

Q:Can you give us some thoughts on how you’re thinking about your energy hedges, as it relates to natural gas, as well as potentially, you know, your sourcing of coal and soda ash?

A:We have very favorable energy long term contracts that we set before the Russia Ukraine war. We’ve been benefiting from that.

Q:Can you confirm if there were any curtailments in The Americas?

A:You did hear right. There were no curtailments of any consequence in The Americas.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer regarding the specific impact of fewer Chinese imports on the market, stating that they are not seeing a significant impact due to pre-buying, but did not elaborate on potential future implications.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call highlights strong financial performance in the Americas and promising initiatives like 'Fit to Win,' with significant cost savings. Despite some uncertainties in Europe and tariff concerns, the positive outlook for free cash flow and reaffirmed earnings guidance suggest a favorable sentiment. The Q&A section reinforces this with expectations of sequential growth in benefits and strong market opportunities, particularly in Latin America. Considering the company's market cap, these factors indicate a likely positive stock price movement in the short term.

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